Town Sports International (CLUBQ) 8-K Results of Operations and Financial Condition

For Release on May 2^nd, 2007

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. ANNOUNCES FIRST QUARTER 2007 FINANCIAL RESULTS

• First quarter 2007 total revenue increased 10.9% to $115.4 million versus $104.0 million in first quarter 2006.

• Comparable-club revenue increased by 7.8% for first quarter 2007 compared to first quarter 2006.

• Operating income increased by 19.2% to $12.4 million versus $10.4 million in first quarter 2006.

New York, NY — May 2, 2007— Town Sports International Holdings, Inc. (“TSI” or the “Company”) (NASDAQ: CLUB), a leading owner of health clubs located primarily in major cities from Washington, DC north through New England, operating under the brand names New York Sports Clubs, Boston Sports Clubs, Washington Sports Clubs and Philadelphia Sports Clubs, announced its results for the quarter ended March 31, 2007.

First quarter 2007 total revenue grew 10.9% to $115.4 million from $104.0 million for the first quarter of 2006. Comparable club revenue increased 7.8% during the first quarter compared to the same period in the prior year.

Robert Giardina, Chief Executive Officer of TSI, commented: “We are pleased to have started the year with good results and continued positive momentum. Most notably, comparable club revenue growth was again strong, increasing 7.8% and driven by both increased membership and ancillary revenue. New membership sign-ups remained solid and we grew our membership base by 8.7% when compared to March 31, 2006, which was in line with our plan for the quarter, and we continue to anticipate opening approximately 15 new clubs in 2007, equal to 10% square footage growth.”

Quarter ended March 31, 2007 Financial Highlights:

Revenue (in $’000s) was comprised of the following:

	Three Months Ended March 31,
	2006				2007
Membership dues	$	83,139	79.9	%	$	90,984	78.9	%
Initiation fees		1,931	1.9	%		2,883	2.5	%
Membership revenue		85,070	81.8	%		93,867	81.4	%
Personal training revenue		12,267	11.8	%		13,921	12.0	%
Other ancillary club revenue		5,586	5.4	%		6,552	5.7	%
Ancillary club revenue		17,853	17.2	%		20,473	17.7	%
Fees and other revenue		1,104	1.0	%		1,037	0.9	%
Total revenue	$	104,027	100.0	%	$	115,377	100.0	%

Total revenuefor Q1 2007 grew 10.9% to $115.4 million from $104.0 million for the same period last year. The increase in revenue was driven by growth in membership revenue and ancillary club revenue.

• Membership revenue for Q1 2007 grew 10.3% to $93.9 million from $85.1 million in Q1 2006.

• Ancillary club revenue for Q1 2007 grew 14.7% to $20.5 million from $17.9 million in Q1 2006.

• Comparable club revenue increased 7.8% during Q1 2007 when compared to the same period of the prior year. This increase in comparable club revenue is due to a 4.5% increase in membership, a 0.9% increase in price and a 2.4% increase related to ancillary club and other revenue.

Total operating expensesincreased by 10.0% to $103.0 million in Q1 2007 compared to $93.6 million in Q1 2006.

• Payroll and related expenses increased 9.4% or $3.9 million to $44.8 million in Q1 2007 compared to $40.9 million in Q1 2006, much in line with revenue growth.

o Payroll costs directly related to the Company’s personal training, Group Exclusives, and Sports Clubs for Kids programs increased $939,000 or 10.4%, due to increased demand for these programs.

o As a reminder, Q1 2006 operating expenses included a charge relating to severance packages to our Chairman and certain employees who agreed to severance packages totaling $1.6 million. The total costs of these severance packages were recorded in Q1 2006 while no comparable costs were incurred in Q1 2007.

• Club operating expenses increased 14.2% or $4.9 million to $39.4 million for Q1 2007 compared to $34.5 million in Q1 2006.

o Rent and occupancy expenses increased $2.4 million. Rent and occupancy expenses at clubs that have opened since April 1, 2006 or that are currently being constructed increased $1.9 million.

o Advertising and marketing expenses increased $1.1 million, as we expended $3.3 million in Q1 2007 compared to $2.2 million in Q1 2006, based in part on specific marketing that pushed a greater percentage of advertising spending into the first quarter this year.

o As part of a customer service initiative, we outsourced towel laundry service in 22 clubs in Q1 2007. As our clubs have become more intensely clustered in our markets, and member cross usage becomes more prevalent, we have found it increasingly necessary to offer these services at more of our clubs. Accordingly, we experienced a $609,000 increase in laundry expenses during Q1 2007 compared to Q1 2006.

• General and administrative expenses were $7.8 million during Q1 2007 compared to $7.9 million in Q1 2006. In Q1 2006, we incurred $569,000 of costs related to the examination of strategic and financing alternatives. No comparable costs were incurred in Q1 2007.

• Depreciation and amortization expenses totaled $11.1 million during Q1 2007 and $10.4 million during Q1 2006 principally due to new and expanded clubs.

• Loss on extinguishment of debt totaled $12.5 million during Q1 2007. This loss was due to the early termination fees, deferred financing costs written-off, and associated fees related to the tender offer and early redemption of the remaining $170.0 million of outstanding principal of the 9 5/8% Senior Notes issued by our wholly owned subsidiary Town Sports International LLC (“TSI LLC”).

• The Company recorded an income tax benefit of $2.6 million in Q1 2007 compared to a provision of $1.0 million in Q1 2006 principally related to the effects of the loss on extinguishment of debt. In Q1 2006, a discrete income tax charge totaling $657,000 was recorded to reflect the reduction in state tax assets that we believed were not more likely than not to be realized in association with the Company’s use of the proceeds from its initial public offering, which closed on June 7, 2006.

Net lossfor Q1 2007 was $3.8 million compared to a net loss of $135,000 in Q1 2006.

EBITDAfor Q1 2007 increased 12.7% to $23.9 million from $21.2 million in Q1 2006. As a percentage of total revenue, EBITDA margin was 20.7% in Q1 2007, compared to 20.4% in Q1 2006. Please refer to the reconciliation of net loss to EBITDA at the end of this release.

Cash flow from operationsfor Q1 2007 decreased $15.8 million or 45.6% to $18.9 million from $34.7 million in Q1 2006. In connection with the early extinguishment of TSI LLC’s 9 5/8% Senior Notes in Q1 2007, the interest on TSI LLC’s 9 5/8% Senior Notes was paid in February 2007, while in 2006 comparable interest was not payable until April 2006. Interest paid in Q1 2007 was $6.0 million compared to $150,000 in Q1 2006. In addition, the Company’s cash payments for income taxes totaled $3.9 million during Q1 2007. In Q1 2006, the Company recorded a $3.6 million Federal tax refund and paid $645,000 in state income taxes, resulting in a net tax refund of $3.0 million in Q1 2006. This represents a $6.9 million increase in cash paid for taxes in Q1 2007 when compared to Q1 2006. Cash flow from operations in Q1 2007 was further adversely affected by the timing of our regular payroll payment dates when compared to Q1 2006.

Cash used in financing activitiesfor Q1 2007 totaled $2.9 million. On February 27, 2007, TSI LLC received proceeds of $185.0 million from a new term loan facility. The proceeds from this facility were used to repay the remaining $170.0 million principal of TSI LLC’s 9 5/8% Senior Notes. The premium paid for this early debt extinguishment was $9.3 million and the costs related to the new credit facility were $2.6 million.

The Company will hold a conference call on Wednesday, May 2, 2007 at 5:00 PM (Eastern) to discuss the first quarter 2007 results. Robert Giardina, Chief Executive Officer, and Richard Pyle, Chief Financial Officer, will host the conference call. The conference call will be Web cast and may be accessed via the Company’s Investor Relations section of its Website at www.mysportsclubs.com. A replay and transcript of the call will be available via the Company’s Website beginning May 3, 2007.

2007 Business Outlook:

Based upon the current business environment, Q1 2007 performance and current trends in our marketplace, the Company currently expects the following results for the remainder of 2007, subject to risks and uncertainties in any forward-looking statements:

The Company expects to open approximately 12 new clubs during the remainder of 2007. The Company expects total revenue for the year to be in the range of $475.0 million to $480.0 million, representing 10% to 11% growth over 2006, driven by club membership and ancillary revenue growth, the maturation of recently opened clubs, as well as new clubs to be opened during the year.

The Company expects net income to be between $13.7 million and $14.7 million for 2007, when compared with the 2006 net income of $4.6 million. The net income for 2007 will be arrived at after a total charge of approximately $12.5 million for early extinguishment of debt before corporate income taxes, or $7.4 million after corporate income taxes. As set forth in the reconciliation below, the Company expects net income to be between $21.1 million and $22.1 million without the after-tax effects of these debt extinguishment costs. The Company expects EPS of between $0.51 and $0.55 per share for the year, which includes an amount of $0.28 in connection with the early extinguishment of debt, or between $0.79 and $0.83 per share before the early debt extinguishment charges on as after-tax basis, unchanged from previous guidance.

Included in this guidance for net income and earnings per share (“EPS”) are the effects of the refinancing of the 9 5/8% Senior Notes issued by TSI LLC. TSI LLC used the proceeds from its new $185.0 million term loan facility priced at LIBOR plus 1.75%, currently set at 7.1%, including the applicable margin, for the purchase through a tender offer and redemption of its 9 5/8% Senior Notes and the associated estimated interest savings.

										Year Ending 2007
							Year-ended			Guidance
	Q1 2006			Q1 2007			2006			Between		And
All figures in thousands, except share data
Revenue	$	104,027		$	115,377		$	433,080		$	475,000	$	480,000
Net income (loss)	$	(135	)	$	(3,801	)	$	4,647		$	13,700	$	14,700
Loss on extinguishment of debt, net of effect of taxes		—			7,387			9,507			7,400		7,400
Net non-recurring tax (benefit) provision (1)		657			—			(1,221	)		—		—
Net income before loss on extinguishment of debt and non-recurring tax benefit	$	522		$	3,586		$	12,933		$	21,100	$	22,100
Fully diluted share count (2)		18,327,722			25,997,253			23,154,812			26,600,000		26,600,000

(1)	The net non-recurring tax benefit in 2006 represents the $2.0 million non-recurring deferred tax benefit recorded in the fourth quarter of 2006, net of the $800,000 nonrecurring income tax charges in the first and second quarters of 2006. The Company estimates that its normalized effective tax rate for 2007 will be between 40.0% and 42.0%.
(2)	Due to the net loss position in Q1 2006 and Q1 2007, basic and fully diluted shares were the same. Common stock equivalents excluded from the fully diluted share count for Q1 2006 and Q1 2007 were 231,588 and 546,226, respectively.

About Town Sports International Holdings, Inc.:

New York-based Town Sports International Holdings, Inc. is a leading owner and operator of fitness clubs in the Northeast and mid-Atlantic regions of the United States. In addition to New York Sports Clubs, TSI operates under the brand names of Boston Sports Clubs, Washington Sports Clubs and Philadelphia Sports Clubs, with 149 clubs and more than 470,000 members in the U.S. In addition, the Company operates three facilities in Switzerland with approximately 6,000 members. For more information on TSI visithttp://www.mysportsclubs.com.

Town Sports International Holdings, Inc., New York
Contact Information:

Investor Contact:
(212) 246-6700 extension 710
Investor.relations@town-sports.com or

Joseph Teklits
Integrated Corporate Relations
joseph.teklits@icrinc.com

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2006 and March 31, 2007
(All figures in $’000s, except share data)
(Unaudited)

	December 31,			March 31,
	2006			2007
ASSETS
Current assets:
Cash and cash equivalents	$	6,810		$	9,277
Accounts receivable (less allowance for doubtful accounts of $2,026 and $2,820 as of December 31, 2006 and March 31, 2007, respectively)		8,028			9,976
Inventory		435			415
Prepaid corporate income taxes		—			1,620
Prepaid expenses and other current assets		14,757			13,449
Total current assets		30,030			34,737
Fixed assets, net		281,606			287,274
Goodwill		50,112			50,107
Intangible assets, net		922			769
Deferred tax asset, net		32,437			35,311
Deferred membership costs		15,703			16,538
Other assets		12,717			11,658
Total assets	$	423,527		$	436,394
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt	$	181		$	1,999
Accounts payable		9,972			9,127
Accrued expenses		33,220			29,380
Accrued interest		3,466			1,335
Corporate income taxes payable		2,577			—
Deferred revenue		38,980			44,459
Total current liabilities		88,396			86,300
Long-term debt		280,948			297,013
Deferred lease liabilities		54,929			56,120
Deferred revenue		5,807			5,916
Other liabilities		11,276			11,352
Total liabilities		441,356			456,701
Commitments and contingencies		—			—
Stockholders’ deficit:
Class A voting common stock, $.001 par value; issued and outstanding 25,975,948 and 26,067,508 shares at December 31, 2006 and March 31, 2007, respectively		26			26
Paid-in capital		(21,068	)		(19,766	)
Accumulated other comprehensive income (currency translation adjustment)		539			560
Retained earnings (accumulated deficit)		2,674			(1,127	)
Total stockholders’ deficit		(17,829	)		(20,307	)
Total liabilities and stockholders’ deficit	$	423,527		$	436,394

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2006 and 2007
(All figures in $’000s except share and per share data)
(Unaudited)

	Three Months Ended
	March 31,
	2006			2007
Revenues:
Club operations	$	102,923		$	114,340
Fees and other		1,104			1,037
		104,027			115,377
Operating Expenses:
Payroll and related		40,897			44,751
Club operating		34,470			39,364
General and administrative		7,861			7,758
Depreciation and amortization		10,386			11,091
		93,614			102,964
Operating Income		10,413			12,413
Loss on extinguishment of debt		—			12,521
Interest expense		10,687			7,016
Interest income		(725	)		(259	)
Equity in the earnings of investees and rental income		(433	)		(422	)
Income (loss) before provision (benefit) for corporate income taxes		884			(6,443	)
Provision (benefit) for corporate income taxes		1,019			(2,642	)
Net loss	$	(135	)	$	(3,801	)
Loss per share:
Basic	$	(0.01	)	$	(0.15	)
Diluted	$	(0.01	)	$	(0.15	)
Weighted average number of shares used in calculating loss per share:
Basic		18,327,722			25,997,253
Diluted		18,327,722			25,997,253

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2006 and 2007
(All figures in $’000s)
(Unaudited)

	Three Months
	Ended March 31,
	2006			2007
Cash flows from operating activities:
Net loss	$	(135	)	$	(3,801	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		10,386			11,091
Non-cash interest expense on Senior Discount Notes		4,126			2,962
Loss on extinguishment of debt		—			12,521
Amortization of debt issuance costs		417			269
Noncash rental expense, net of noncash rental income		(19	)		508
Compensation expense incurred in connection with stock options		43			169
Net changes in certain operating assets and liabilities		22,331			(2,411	)
Increase in deferred tax asset		(2,315	)		(2,874	)
Landlord contributions to tenant improvements		1,610			1,131
Increase in reserve for self-insured liability claims		495			140
Increase in deferred membership costs		(2,221	)		(835	)
Other		22			21
Total adjustments		34,875			22,692
Net cash provided by operating activities		34,740			18,891
Cash flows from investing activities:
Capital expenditures		(15,023	)		(19,311	)
Net cash used in investing activities		(15,023	)		(19,311	)
Cash flows from financing activities:
Proceeds from New Credit Facility		—			185,000
Costs related to issuance of New Credit Facility		—			(2,631	)
Repayment of Senior Notes		—			(169,999	)
Premium paid on extinguishment of debt and related costs		—			(9,309	)
Repayment of long term borrowings		(311	)		(79	)
Change in book overdraft		(986	)		(1,230	)
Tax benefit from stock option exercises		—			515
Proceeds from exercise of stock options		—			620
Net cash (used in) provided by financing activities		(1,297	)		2,887
Net increase in cash and cash equivalents		18,420			2,467
Cash and cash equivalents at beginning of period		51,304			6,810
Cash and cash equivalents at end of period	$	69,724		$	9,277
Summary of change in certain operating assets and liabilities:
Increase in accounts receivable	$	(2,083	)	$	(2,247	)
(Increase) decrease in inventory		(71	)		20
Decrease in prepaid expenses and other current assets		369			933
Increase (decrease) in accounts payable, accrued expenses and accrued interest		10,110			(2,510	)
Change in prepaid corporate income taxes and corporate income taxes payable		4,518			(4,197	)
Increase in deferred revenue		9,488			5,590
Net changes in certain operating assets and liabilities	$	22,331		$	(2,411	)

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

Reconciliation of Net Income to EBITDA
For the three months ended March 31, 2006 and 2007
(All figures in $’000s)
(Unaudited)

	Three Months Ended
	March 31,
	2006			2007			% Chg.
Net loss	$	(135	)	$	(3,801	)
Provision for corporate income taxes		1,019			(2,642	)
Loss on extinguishment of debt		—			12,521
Interest expense, net of interest income		9,962			6,757
Depreciation and amortization		10,386			11,091
EBITDA	$	21,232		$	23,926			12.7	%
EBITDA Margin		20.4	%		20.7	%

Non GAAP Financial Measures:

EBITDA is defined as earnings before interest, taxes, depreciation and amortization and loss on extinguishment of debt. EBITDA provides useful information regarding the Company’s operating performance and financial condition, subject to the limitations described below. EBITDA should not be considered in isolation or as a substitute for net income, cash flows or other consolidated income (loss) or cash flow data prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) or as a measure of the Company’s profitability or liquidity. Additionally, investors should be aware that EBITDA may not be comparable to similarly titled measures presented by other companies. EBITDA margin is defined as EBITDA as a percentage of consolidated revenue.

Forward-Looking Statements:

Statements in this release that do not constitute historical facts, including, without limitation, statements under the caption “2007 Business Outlook,” and other statements regarding future financial results and performance and potential sales revenue are “forward-looking” statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements under the caption “2007 Business Outlook,” other statements regarding future financial results and performance and potential sales revenue, other statements that are predictive in nature or depend upon or refer to events or conditions, or that include words such as “expects,” “anticipated,” “intends,” “plans,” “believes,” “estimates” or “could”. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company’s control, including the level of market demand for the Company’s services, competitive pressures, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, the application of federal and state tax laws and regulations, and other specific factors discussed herein and in other releases and public filings made by the Company (including Forms 10-K and 10-Q filed with the Securities and Exchange Commission); accordingly, actual results could differ materially from any such forward-looking statement. The forward-looking statements speak only as of the date hereof and the Company does not intend to update this information to reflect developments or information obtained after the date hereof and the Company disclaims any legal obligation to the contrary.